Life, Accident & Sickness Agent (12-GA-
05) Certification Study Guide and Mock
Tests Agent Exam Prep: 200 Practice
Question And Correct Answers .
Part 1: General Insurance Principles (Questions 1-30)
1. What is the primary function of insurance?
A) To eliminate all risk of loss
B) To create a savings account for the insured
C) To spread financial risk among a large group of people
D) To provide a guaranteed investment return
Correct Answer: C) To spread financial risk among a large group of people
Explanation: Insurance is a social device for spreading the chance of financial loss among a large
number of people, transferring individual risk to the insurer . It does not eliminate risk but makes it
more manageable.
2. Which type of risk involves the chance of loss or gain and is generally NOT insurable?
A) Pure Risk
B) Speculative Risk
,C) Particular Risk
D) Fundamental Risk
Correct Answer: B) Speculative Risk
Explanation: A speculative risk involves the opportunity for either a loss or a gain (e.g., gambling,
starting a business). Insurance is designed to cover pure risk, which involves only the chance of
loss or no loss .
3. A fire is an example of a:
A) Hazard
B) Peril
C) Risk
D) Exposure
Correct Answer: B) Peril
Explanation: A peril is the cause of a loss, such as a fire, flood, or accident. A hazard is anything
that increases the chance of loss .
4. An individual who has a careless attitude and frequently speeds is an example of which
type of hazard?
A) Physical Hazard
B) Moral Hazard
C) Morale Hazard
D) Legal Hazard
Correct Answer: C) Morale Hazard
,Explanation: A morale hazard (or attitudinal hazard) stems from a careless or indifferent attitude
that increases the chance of loss. This is different from a moral hazard, which involves
dishonesty .
5. According to the Law of Large Numbers, as the number of exposure units increases, the
ability to predict losses becomes:
A) More accurate
B) Less accurate
C) Remains the same
D) Impossible
Correct Answer: A) More accurate
Explanation: The Law of Large Numbers is a statistical principle that states the larger the number
of people or units in a group, the more accurate the predictions about future losses become. It is
the foundation of insurance .
6. What is the term for the person applying for an insurance policy?
A) Insured
B) Beneficiary
C) Applicant
D) Policyowner
Correct Answer: C) Applicant
Explanation: The applicant is the person who applies for the insurance policy. While they may
also be the policyowner and the insured, the term specifically applies to the person completing
the application .
, 7. Which type of insurance company is owned by its policyholders?
A) Stock Company
B) Reciprocal Exchange
C) Mutual Company
D) Lloyds of London
Correct Answer: C) Mutual Company
Explanation: A mutual insurance company is owned by its policyholders, who may receive
dividends. A stock company is owned by shareholders .
8. An insurance company incorporated in another state (e.g., Florida) and authorized to do
business in Georgia is considered a(n) ________ insurer in Georgia.
A) Domestic
B) Foreign
C) Alien
D) Non-Admitted
Correct Answer: B) Foreign
Explanation: Under Georgia law, an insurer is classified as domestic if formed in Georgia, foreign
if formed in another U.S. state, and alien if formed outside the United States .
9. What does the McCarran-Ferguson Act of 1945 establish?
A) The federal government as the primary regulator of insurance
05) Certification Study Guide and Mock
Tests Agent Exam Prep: 200 Practice
Question And Correct Answers .
Part 1: General Insurance Principles (Questions 1-30)
1. What is the primary function of insurance?
A) To eliminate all risk of loss
B) To create a savings account for the insured
C) To spread financial risk among a large group of people
D) To provide a guaranteed investment return
Correct Answer: C) To spread financial risk among a large group of people
Explanation: Insurance is a social device for spreading the chance of financial loss among a large
number of people, transferring individual risk to the insurer . It does not eliminate risk but makes it
more manageable.
2. Which type of risk involves the chance of loss or gain and is generally NOT insurable?
A) Pure Risk
B) Speculative Risk
,C) Particular Risk
D) Fundamental Risk
Correct Answer: B) Speculative Risk
Explanation: A speculative risk involves the opportunity for either a loss or a gain (e.g., gambling,
starting a business). Insurance is designed to cover pure risk, which involves only the chance of
loss or no loss .
3. A fire is an example of a:
A) Hazard
B) Peril
C) Risk
D) Exposure
Correct Answer: B) Peril
Explanation: A peril is the cause of a loss, such as a fire, flood, or accident. A hazard is anything
that increases the chance of loss .
4. An individual who has a careless attitude and frequently speeds is an example of which
type of hazard?
A) Physical Hazard
B) Moral Hazard
C) Morale Hazard
D) Legal Hazard
Correct Answer: C) Morale Hazard
,Explanation: A morale hazard (or attitudinal hazard) stems from a careless or indifferent attitude
that increases the chance of loss. This is different from a moral hazard, which involves
dishonesty .
5. According to the Law of Large Numbers, as the number of exposure units increases, the
ability to predict losses becomes:
A) More accurate
B) Less accurate
C) Remains the same
D) Impossible
Correct Answer: A) More accurate
Explanation: The Law of Large Numbers is a statistical principle that states the larger the number
of people or units in a group, the more accurate the predictions about future losses become. It is
the foundation of insurance .
6. What is the term for the person applying for an insurance policy?
A) Insured
B) Beneficiary
C) Applicant
D) Policyowner
Correct Answer: C) Applicant
Explanation: The applicant is the person who applies for the insurance policy. While they may
also be the policyowner and the insured, the term specifically applies to the person completing
the application .
, 7. Which type of insurance company is owned by its policyholders?
A) Stock Company
B) Reciprocal Exchange
C) Mutual Company
D) Lloyds of London
Correct Answer: C) Mutual Company
Explanation: A mutual insurance company is owned by its policyholders, who may receive
dividends. A stock company is owned by shareholders .
8. An insurance company incorporated in another state (e.g., Florida) and authorized to do
business in Georgia is considered a(n) ________ insurer in Georgia.
A) Domestic
B) Foreign
C) Alien
D) Non-Admitted
Correct Answer: B) Foreign
Explanation: Under Georgia law, an insurer is classified as domestic if formed in Georgia, foreign
if formed in another U.S. state, and alien if formed outside the United States .
9. What does the McCarran-Ferguson Act of 1945 establish?
A) The federal government as the primary regulator of insurance
